SHILLER: Austerity Is Great For Buddhist Temples And Military Boot Camps, But Not The Real World

As the debt crisis blew up around the world, many economists and politicians have argued for austerity in their efforts to reduce deficits and scale back debt.

While many continue to debate the economic effectiveness of austerity, the social impact seems to be more clear.

In a new piece for Project Syndicate, Robert Shiller discusses the impact of austerity on morale. He addresses and criticises those who believe austerity is somehow good for social morale:

Austerity, according to some of its promoters, is supposed to improve morale. British Prime Minister David Cameron, an austerity advocate, says he believes that his program reduces “welfare dependency,” restores “rigour,” and encourages the “the doers, the creators, the life-affirmers.” Likewise, US Congressman Paul Ryan says that his program is part of a plan to promote “creativity and entrepreneurial spirit.”

Some kinds of austerity programs may indeed boost morale. Monks find their life’s meaning in a most austere environment, and military boot camps are thought to build character. But the kind of fiscal austerity that is being practiced now has the immediate effect of rendering people jobless and filling their lives with nothing but a sense of rejection and exclusion.

Shiller maintains his position that the best way to dig out of the world’s economic woes is through fiscal stimulus, which wouldn’t harm morale.

“For morale, we need a social compact that finds a purpose for everyone, a way to show oneself to be part of society by being a worker of some sort,” he writes. “And for that we need fiscal stimulus – ideally, the debt-friendly stimulus that raises taxes and expenditures equally.”